Have you thought about buying your first rental property? Don't know if you're ready to take the leap of faith just yet? Here are some aspects to consider when deciding which route to take when investing.

Also, for those of you who have experience in investment properties, we would love for you to share your first-hand experience to help others in the TexAgs community.

Things to ask yourself:
* Would a single or multi-family property be best for me?
* Am I investing to flip or for rental income?
* Do I want to rent to students or families?

Financing Considerations:
* 15 or 30 year Conventional Loan is most common; interest rate and monthly payment never changes.
* Typically, loans require at least 20% down payment on a non-owner occupied property.
* In addition to the down payment, do not overlook closing costs. Closing costs consists of title fees, insurance, recording fees, lender fees, tax certificates, appraisals, etc. (Borrower can/should negotiate with the seller to pay part, or all, of the closing costs).
* Annual Percentage Rate vs. Interest Rate: IR is a percentage of the loan amount that is charged when borrowing money from a lender, while the APR is considered the true cost of the loan. APR takes into account the interest rate and certain other fees required to finance the property.

Plan of attack:
*Know your credit score - it can greatly influence your loan-to-value ratio
*Research property taxes - current owner may have exemptions that you may not qualify for and/or assessed value may be lower than your purchase price
*Research the marketplace

Quick tips:
*Buy low, rent smart, sell high (obviously)
*Keep expectations realistic
*Understand your cash flow have at least 6 months' worth of mortgage payments, taxes and insurance for each property you own as cash reserves
*Plan for the best, prepare for the worst.

If you are a first time investor and have questions, please respond to this thread and we will answer as quickly as possible.

American Momentum Bank
"Official Bank of TexAgs"
Frank Varisco '82, NMLS ID 815190
fvarisco@americanmomentumbank.com
Market President Bryan/College Station
979.599.9348

Don't do it!

Avoid residential. Invest in mini-storage or an RV park.

Do do it. I made fun of a HS buddy who skipped college to become a fire fighter. He just retired at 43 with 75% of his pay for life and has 20+ rental properties. With my degree, I've got 12 years to retirement and 3 rental properties.

Move to Long Beach, CA and use me as your Broker.

Start small, cash fund every red cent you can afford. Deal with a local bank that will keep your business in house. Don't invest in areas where you are not familiar with the economy. Put your earnings back in the properties and let them build value. Improve the property and keep them relevant.

Keep your investments in areas with strict code enforcement. Also, avoid places where government doesn't participate in economic development. Rental property is a long run investment and you want to build an income stream for the future. Don't lose sight of that when an offer comes along that looks good for the short run.

Real Estate investing, if done right will out perform most other long term investments. There is inherent value in Real Estate that generally doesn't exist in many other investment vehicles.

And good luck. Never hurts to have a bit of luck in the RE world...

All good advice above. Basically two ways to make money in real estate. Price appreciation using upgrading to improve condition to flip and/or time to grow in value. The other way is buy and hold for cash flow, appreciation is secondary but usually nice icing on the cake so to speak.

The least risk IMHO is buy and hold on cash flow property that returns a POSITIVE CASH FLOW day one. Typically rent payments don't fluctuate as much as home prices, especially on the downside. I am a buy and holder with real estate and so far I have been exclusively buying duplexes. Why, because they provide more cash flow than a single family home, but not as management intensive as a 4plex. The more units you have in a building, usually the better cash flow but duplexes are a great entry level property that provides a lot of slop should you misjudge an item or two.

A couple more tips. I use the 1% rule in buying. The monthly rent should equal or more than 1% of the value of the property. For example: if the property brings in $1500 monthly rent then pay no more than $150,000 for the property. Remember this is a guide, exceptions to every rule but this will help keep you out of trouble.

Also keep emotions as much as you can out of the buying decision and the management process. Yes you will have a few bad experiences with tenants, learn from them and move on. Cash Flowing Real Estate is an EXCELLENT way to build wealth and provide long term cash flow especially for retirement.

Last tip. A duplex usually will provide $600-$700 positive each month. Keep your rent money separate from personal money. Save 1st years profits for maintenance reserve, then take profits and pay down note. Use a 30 year mortgage, it give you the best cash flow flexibility but after year one start paying down early with profits. You will own the duplex between year 10-12 and then you have a pension for life.

Happy Real Estate hunting and Good luck. Bought my 1st property (duplex in Bryan 2002). Still have it today and another 6 duplexes to go with it! 1st duplex paid off in 8.5 years!

How do you go about finding the properties you end up buying?

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Put your earnings back in the properties and let them build value. Improve the property and keep them relevant.

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This is a very good suggestion. I am in the process of taking over my dad's real estate business and he did not do this as much as he should have. Now we are in the position where we have to do massive upgrades or even teardown and rebuild on a few places.

Every 5-10 years you should look at what you can do to improve the property as much as feasible. What happens is that eventually your properties will become more and more outdated and the rents will drop more and more behind the market. When you are on the lower end of rents, your tennant quality will start dropping.

Network like crazy. Tell wholesalers what your looking for. Find a location you want to invest in, when you see a for rent sign especially if you think it is the owner call them and ask about buying there property. Call them every six months to see if they are willing to sell. Check realtor.com, zillow.com, craigslist. Talk to renters to see if they have the OWNERS contact information. The more you can go direct the better price you can drive. Join real estate investment clubs or meetups in the local area at meetup.com. Start looking at a lot of property even if you are not going to buy to get a sense of a good deal when you see one. Now days you have to be willing to act fast if you truly come across a good deal. They are out there.

Glad this topic came up, wife and I were wondering what kind of ordeal would it be to buy a weekend getaway property (condo or home) near or around Corpus. We are not really interested in making money off it right away but rather rent it during the times we are not using it for ourselves. Would it be possible to have the property at least pay for itself this way?

Take it to the B&I board. Not Aggie football related.

Telling the Staff and a Sponsor to take to the B&I Board.....Genius.

Don't forget to plan for being labeled a dealer and the houses seen as inventory. The IRS (tax law) can be tricky on income from rentals as opposed to profit from flipping (capital gains tax, self employment tax, etc). Know how you will be identified by the IRS according to your approach and proficiency.


And plan for the costs incurred (expenses) not to be immediately deductible. They must be added to the original house value. The tax benefit from expenses comes from the sale of the property.

Yes...wrong board

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Don't forget to plan for being labeled a dealer and the houses seen as inventory. The IRS (tax law) can be tricky on income from rentals as opposed to profit from flipping (capital gains tax, self employment tax, etc). Know how you will be identified by the IRS according to your approach and proficiency.


And plan for the costs incurred (expenses) not to be immediately deductible. They must be added to the original house value. The tax benefit from expenses comes from the sale of the property.

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Budget for a good RE CPA. Good advice above.

Get a place with storage and no neighbors directly behind you. Don't buy a house where you are house poor. Which means you can afford your house payment but can't do much else. Good Luck